Market Shift Means Less Debt For Dell In EMC Acquisition -- And A Possible Channel Investment Boost

Debt markets have turned in Dell's favor, allowing the company to scale back its junk bond borrowing in favor of investment-grade bonds to finance its more than $60 billion acquisition of EMC.

Dell's success in paying down the debt it took on when the company was taken private is also working in the company's favor, and partners are speculating that additional financial breathing room could allow Dell to pump investment dollars into its operations -- including its channel program.

Dan Serpico, CEO of FusionStorm, a large, San Francisco-based Dell partner, said it's encouraging to think that Dell could use additional financial flexibility to make investments in its channel operation. A lack of that kind of flexibility has hurt EMC's channel program in recent years, Serpico said.

[Related: Michael Dell On Dell-EMC's Storage Overlap, Future Acquisitions And The Blockbuster Deal's Channel Impact]

"One of the things that was challenging about EMC over the last couple of years was they didn't have the money they once had, and there was impact to the channel in terms of margin, marketing funds and rebates," Serpico said. "It is encouraging to know that Dell isn't going to have those kinds of restraints that would cause them to pull back in other areas, including the channel."

Jason Cherveny, CEO of Sanity Solutions, a Denver-based Dell partner, said he's pleased by the prospect of increased investment in the channel. "When the financial situation turns in the favor of Dell or any company, theoretically, they'd have additional monies to invest in other projects. It could be products, or it could be the channel," Cherveny said.

Dell, Cherveny said, "has done a great job investing in the channel and helping our companies grow. I've been really happy with the investments Dell has made in the channel. They're a smart company, and if the channel is growing faster than other segments, ... why wouldn't they? They've proved in the past that they would, and they have."

’I am hopeful that Dell will pump some of that money into building a channel that can service the enterprise with more than fulfillment,’ said Aaron Cardenas, CEO of P1 Technologies, a Hermosa Beach, Calif., Dell partner. ’EMC Enterprise has historically been channe-averse, and that has changed markedly over the past three to five years. I hope that Dell recognizes that trend and continues to drive it further."

"In the end of the day," Cardenas said, "all of these large vendors want to control the entire infrastructure stack, but the reality is that they very rarely do, which means that they must have good partners that can integrate the different platforms from the different vendors.’

Dell may increase the amount of debt it’s raising in the investment-grade bond market by several billion dollars, according to a Bloomberg report that also said the company would raise $3.25 billion in unsecured, high-yield bonds, down dramatically from the $9 billion in junk bonds the company initially planned to raise.

The changes come as borrowing costs in the investment-grade debt market trend lower. Yields in the investment grade debt market have fallen to their lowest level in about a year, according to bank data.

Dell has also been somewhat successful raising cash in asset sales, selling its services business to Japan-based NTT Data for about $3.1 billion, and actively shopping several other businesses.

Debt market conditions could mean Dell would borrow less overall to fund the EMC acquisition, allowing it to borrow about $43 billion rather than the $49.5 billion it said it would take on when it announced the acquisition last October.

The investment grade portion of the debt package may price soon, according to reports that estimated the company could sell as much as $16 billion in bonds this week. The merger, which is considered the largest in the history of the tech industry, is expected to close before the end of October. EMC shareholders have yet to approve the deal. The transaction has won approvals from U.S. and European regulators, but has not yet been approved by Chinese authorities.